3 Possible Impacts Of US Fed Rate Hike To Philippine Economy

A security guard walks in front of an image of the Federal Reserve in Washington, DC, U.S., March 16, 2016.
REUTERS/Kevin Lamarque

The US Federal Reserve (Fed) decided unanimously on Thursday that it will implement an increase of interest rate as it changed its range from 0.25 percent to 0.5 percent to 0.5 percent to 0.75 percent. It also approved a quarter-point increase in the discount, or primary credit, rate, from 1 percent to 1.25 percent.

While this decision from America’s central bank was already expected, economists and analysts provided possible impacts that this rate hike could have to the Philippine economy. The US is one of the most important sources of direct foreign investment in the country. Any forms of changes in its monetary policy will create an impact to emerging economies like the Philippines.

Here are three possible impacts that the US Fed rate hike could have to the Philippine economy.

1. Top fund manager, Mark Mobius, of Templeton Emerging Markets Group said that the US Fed rate hike does not guarantee a weaker market.

“I think people have been too emphasizing on the Fed rate. What they should be looking at is the bigger picture: what is the impact of [US President-elect Donald] Trump policies and inflation?” ABS-CBN News reported Mobius, as saying. He added that the country’s economy is facing a bigger risk, which is the weakening of the peso.

“With weak currency, you can buy more stocks in the Philippines. Many Philippine companies are very good, they are well-run, well-managed, and there's a great opportunity for us as dollar investors to bring dollars back in to convert into pesos which are very lower-priced and we can buy equities,” Mobius said.

2. The Bangko Sentral ng Pilipinas (BSP) governor Amando Tetangco said the Fed rate hike could have the short-term concern.

In an interview with Barron’s Asia, Tetangco said that he is worried about the timing and the magnitude of the rate hike as it impacts the policies that the new U.S. administration will adopt. He added that 2017 could be scarier because of the uncertainties that the global economy is facing ahead with populist policies on the rise starting from the Brexit or the decision of the United Kingdom to leave the European Union and Trump’s "America First" perspective.

3. The local stock market will continue to watch out for the impact of the Fed rate hike.

Investors’ sentiments continue to be affected by the decision of the US central bank. On Wednesday, however, the local market reacted positively to the expected increase.

“Expectations are for the committee to raise rates at the December meeting and to remain upbeat about the general outlook,” Business World reported Luis A. Limlingan, managing director at the Regina Capital Development Corp., as saying.

What do you think of the possible impacts of the Fed rate hike to the Philippine economy? Let us know in the comments section below.

Uncertainty looms around global markets as oil prices slip Monday due to an increase in the number of rigs from West Texas Intermediate. Adding to the worry is the possible exit of Britain from the European Union (EU).